When auditors fall out

A debate over standards has divided the profession. By Paul Gosling
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The Independent Culture
THE CREATION of a new committee to clarify audit arrangements for the public sector has been marred by a disagreement between the two main public auditors - the National Audit Office (NAO) and the Audit Commission - on what their own recommendations mean. It has raised important questions about how auditors should be appointed to public bodies.

Today sees the publication of the first report of the Public Audit Forum, a body that brings together the NAO and the Audit Commission. The forum was established in response to recommendations in the first Nolan report on standards in public life, which called on the Treasury to "review the arrangements for external audit of public bodies, with a view to applying the best practices to all".

But the forum's initial report has produced a compromise, the meaning of which is unclear. It lays down the principles of public audit, based on the need for "the independence of public sector auditors from the organisations being audited".

Sources within the Audit Commission say this supports its approach in not only appointing local auditors to councils, but wishing also to appoint the auditors to council-funded bodies such as local authority companies. The Audit Commission believes that it is wrong for public bodies to be permitted to appoint their own auditors, or to agree their fees.

However, the National Audit Office states that the principle of audit independence does not prevent bodies from appointing their own auditors, providing the NAO has full access rights to follow the trail of public money from government departments. The NAO adds that audit appointment arrangements for government-funded bodies can be changed only by an Act of Parliament.

This central disagreement between the two bodies was sidestepped at the forum itself, when the bodies concerned agreed not to discuss different audit regimes.

On the face of it, the continued difference of approach taken by the audit bodies is at odds with the proposal by Nolan for best practice across the public sector. Not unreasonably, members of the committee who were contacted say that they can no longer remember the discussions from four years ago, and cannot now recall their intent. One member, Sir William Utting, a former permanent secretary, did question why it had taken so long for the forum to be established.

The other two principles agreed by the forum are both clearer and less controversial, that public sector audits should cover legality, probity and value for money, and that the results should be publicly available.

But it is unclear how the work of the forum will lead to greater consistency in auditing and accounting standards across public bodies, even though this is implied by Nolan's recommendation.

Peter Wilkinson, director of corporate resources at the Audit Commission, said: "I don't think we have ever spoken about harmonising standards. I think our remit is about making the most sense we can of the audit arrangements.

"That will mean harmonising audit standards, and that may mean the same for accounting standards but that is not our main objective."

Ken Wild, chairman of the Accounting Standards Board's public sector and not-for-profit committee, and a partner at Deloitte and Touche, says that he expects that the work of the forum will assist the move towards auditing and accounting harmonisation across the public sector, a trend that is encouraged by the ASB. He believes that the creation of the forum will not diminish the role of the ASB's committee.

"My committee is still needed because it acts as a filter between the ASB and outside bodies," says Mr Wild. "Even if the public sector stopped asking our advice, the committee would still be there because of the charitable bodies element. It is also there for housing associations, local government and so on to feed into the ASB."